Is it possible to use sys.ini language file for Joomla v1.5 plugin? I want to use it during plugin install. Because default language ini file is not accessible during installation process. So install manager outputs only language key constants like PLG_MY_PLUGIN_DESCRIPTION. I haven't found any hint about it in Joomla v1.5 developer manuals. So I guess sys.ini files work only with components?

Joomla 1.5 does not read .sys.ini language files. Only Joomla 1.6 and above do. If you turn on the debug tool (Site>>Global Congiguration>>System) then it will show you if the language file is being loaded.

A few other things to check:

The description in the XML matches the one in the language file.
Each line at the beginning of the language file for the description area starts with a hash tag # rather than ;
The XML points to the language file in the correct location.
If you have checked all of these then please post some code for the .XML and .INI files.